How Do You Price in Risks From Trump Tweets?

The VIX, the stock market's fear gauge, is currently at its lowest level since July 2014 because policy uncertainty is very high. Investors are struggling with how to price in the risk when it comes to President Trump.

The president's habit of calling out companies for practices he doesn't agree with via Twitter has created market-moving consequences.

"So do you want to hedge the risk if you're going to look at a Trump tweet and consider investing?" BloombergTV anchor Alix Steel asked on Bloomberg Daybreak: Americas Friday morning. "Or, do you take a step back and say that's not policy, that's just a tweet and do a different type of investing? It's something that investors are really struggling with at how to price in that kind of risk."

Bloomberg Markets Live Senior Editor Mike Regan explained what is going on with the VIX after anchor David Westin pointed out that normally the VIX reflects uncertainty.

"This policy uncertainty, the study of it is a fascinating topic," Regan began. "I mean, how do you quantify and measure uncertainty? ... Computers 'read' the newspapers and try to sort of quantify how much uncertainty there is there. So it's still a very young field of science that I think has a lot of potential."

Regan explained that the uncertainty surrounds Trump's "wish list" of what he wants to do. It's reasonable to argue that the president won't get all of it done.

"If he bats .500, though, there is still a lot of equity-friendly, bullish things there. So the tendency is to just sort of take this animal instinct feeling and say there's going to be some stimulus there," Regan said.

The low level of the VIX is "obviously" making people nervous, but it doesn't tend to stay at these "depressed levels," Regan continued.

"The volatility is really in the sectors, the uncertainty is which sectors can benefit the most, what are interest rates going to do? So there's not really a giant concern the whole market's going to tank. It's more different hedging strategies are going on and different sorts of rotation," Regan said.